Aviation industry experts are questioning the logic of the South African government’s fixation on bailing out SAA at a time when the prevailing economic conditions in the country mean that state-owned aviation infrastructural entities are bleeding. The collapse of these entities would put South Africa’s aviation industry and the country’s air connectivity at risk.

The South African Civil Aviation Authority’s (SACAA) annual report for the 2019/20 year shows the organisation to be in a strong financial position, but it expresses grave concern for its ability to continue as a going concern after the 2020/21 financial period. This is due to the impact that COVID-19 has had on its ability to generate revenue.

The report lists the destructive effects of COVID on SACAA’s economic viability in the Situational and Performance Analysis, explaining that SACAA is a self-funded public entity that relies mostly on the Passenger Safety Charges (PSC) levied on air tickets. In a year when ticket volumes have drastically reduced, SACAA’s revenue has been severely impacted.

“Over 70.7% of SACAA’s total revenue is derived from the PSC, and hence the organisation pays attention to industry developments that may have an impact on passenger movements and related numbers. The COVID-19 global lockdown and its effect on the aviation industry is a disastrous reality on its own. With this reality, conjoined with the news of the possible closures of three key South African airlines, the situation turned into a distressing calamity,” states the report, explaining that SAA alone has traditionally contributed 10% of SACAA’s PSC revenue.

SAA and SAX’s business rescue processes also meant that money owed to SACAA by these beleaguered SOEs was ring-fenced, putting further pressure on the organisation’s financial position. SACAA has filed a claim for R5.7m (€315 000) to SAA’s BRPs and one for R4m (€221 000) to SAX’s BRPs but remains doubtful whether this debt will be recovered, according to the report. It adds that SAX has also accrued a further R700 000 (€38 700) of debt for activities following the entity moving into business rescue.

“As a result of these events, our cumulative revenue in the first three months of the 2020/21 financial year was approximately 98% lower than our 2019/20 revenue during the same period. We expect the company’s operating results to decline significantly in the 2020/21 financial year. Also, our liquidity has been impacted, which required us to engage with our shareholder for financial assistance. The government has announced the implementation of government assistance measures that may mitigate the impact of the COVID-19 outbreak on our results and liquidity. We are currently investigating the extent to which we can apply for such government assistance. Depending on the duration of the COVID-19 crisis and the continued negative impact on economic activity, the organisation may experience further negative results and liquidity constraints and incur additional impairments on its assets in the 2020/21 financial year,” continues the report.

“I draw attention to note 28 to the financial statements, which indicates how the COVID-19 pandemic has affected the public entity to date, and results in certain material uncertainties related to the future financial position, performance and cash flows of the public entity. These events or conditions indicate that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern. The main sources of revenue of the entity are the passenger safety charges, user fees and fuel levies generated from the airline industry. The pandemic has caused a significant reduction of air travel both locally and globally, hence the impact on the revenue of the entity,” adds the Auditor-General in his report on SACAA, saying that its management were still of the belief that they had sufficient reserves to continue operating as a going concern.

Aviation expert and MD of Plane Talking, Linden Birns, told Tourism Update that under South Africa’s aviation policy, government was obliged to ensure a level playing field for all the country’s airlines, but it was prejudicing other industry players and jeopardising air connectivity with its tunnel vision approach to bailing out SAA. 

“Despite struggling financially, it is the private-sector airlines and state-owned essential aviation infrastructure service providers, such as the SACAA, ATNS, the SA Weather Service and Acsa, that continue to provide the necessary air connectivity that is the lifeblood of our economy. These entities deserve just as much government support and financial relief as SAA,” said Birns.